WASHINGTON  A legal safe harbor designed to protect lenders that make "qualified mortgage" loans from consumer lawsuits is likely to expose institutions to potentially even greater liability, according to several banking experts.

In theory, under the Consumer Financial Protection Bureau's final mortgage rules, low-priced loans that meet all the criteria of QM are supposed to be largely immune from consumer lawsuits. But lawyers are warning that in practice, consumers might successfully challenge a bank if it fails to fit any one of the many criteria laid out by the CFPB in defining the term.

"The challenge is that lenders can't just waltz into court and say, 'this was a QM loan.' They have to prove it," said Julie Williams, a managing director and head of the domestic advisory practice at Promontory Financial Group, and the former chief lawyer for the Office of the Comptroller of the Currency. "As people have looked at the requirements for QM more closely, I think the takeaway is that the requirements are quite extensive and quite complex."

The CFPB provided two legal protection options for lenders within its qualified mortgage rule so long as they verify a borrower's ability to repay and meet a debt-to-income ratio of no more than 43%. Lenders can either receive a rebuttable presumption for higher-priced loans typically given to borrowers with weaker credit; or they can receive a higher legal safe harbor protection on lower priced loans.

The problem, observers said, is that there are complicated metrics built into the criteria for safe harbor that could easily trip up a bank if it was challenged in court. For example, the rule has certain criteria for how a bank calculates the point-and-fees structure of a loan that could open the door to greater liability. "We expect defaulted borrowers to challenge even so-called 'safe harbor QM loans,' typically by challenging any of the characteristics that involve calculations or judgments, including the 3% 'points and fees' limit or the calculation of the borrower's debt-to-income ratio," said Jeffrey Naimon, a partner at BuckleySandler. "The issue is that the lender not only has to get it right but has to maintain documentation that will be sufficient to prove the safe harbor QM designation to a court for many years to come. Although we expect lenders to win the vast majority of these cases, the cost of victory may be high."

The fear remains that by having more criteria in the QM rule, it opens the door for borrowers or investors to pick and choose a myriad of ways to challenge a lender. One small slip could completely remove the safe harbor protection for a lender on an entire portfolio of loans, some said.

"The bottom line is that the standards to achieve either safe harbor or rebuttable presumption are so many and so detailed that proving it in the heat of a confrontation is going to be a torturous event," said Thomas Vartanian, who chairs the financial institutions practice at Dechert LLP.

But the CFPB argues that a qualified mortgage, a definition meant to foster the growth of the safest loans in the marketplace, should therefore have the strongest requirements.

"The qualified mortgage rule sets clear guidelines for lenders and is part of establishing a framework for prudent underwriting," said Peter Carroll, the CFPB's assistant director for mortgage markets.

Even if the loan does not meet QM standards, lenders must still comply with the broader ability-to-repay rule, which is designed to ensure lenders take borrower's capacity to pay back the loan into account.

"This means that lenders would have to be able to verify income, assets, and debt as part of the ATR requirements, regardless of whether it is a QM loan," said Carroll.

It is unclear if potential legal challenges to a loan's QM status might cause lenders to offer more non-QM products, even though they theoretically pose more credit and legal risk.

"It will be very interesting to see whether the protections that are provided for the QM loans prove to be, on balance, so attractive that the lending gravitates to QM or whether you see lenders figuring out how to get comfortable with non-QM loans that qualify under the more flexible ability-to-repay standards," Williams said.

Raj Date, the chief executive of Fenway Summer, said lenders are still likely to seek QM status for their mortgages.

"Usually, I would think the firm that worries about litigating over a safe harbor QM loan is the exact firm that doesn't want to do a non-QM loan in the first place," said Date, the former No. 2 at the CFPB who helped write the mortgage rules before leaving the agency in January.

The other option is to exit the mortgage space entirely, which would more likely be the case for lenders who are not heavily dependent on the mortgages to being with.

"Most experts believe when this goes into effect, there's going to be some retrenchment in credit availability," Vartanian said.

He noted that he recently asked bankers at an American Bankers Association conference how many of their mortgages in the queue now would be QM. The response: "I got answers that ranged from a reduction in flow of 50% to 70%," he said. "That's not a scientific standard but what it tells you is that there is some window of loans that aren't going to be made; or at least they will be made at a much higher rate."